Keith EmersonWelcome back my friend; To the show that never ends.

Except it did last week, when Keith Emerson died. He was the Emerson in Emerson, Lake & Palmer aka ELP. Emerson was one of the greatest keyboardists of his or any other generation. David Kreps, writing in Rolling Stone, said, “After discovering the Hammond and Moog in his teenage years, Emerson grew into one of the greatest keyboardists of his generation, first as a member of the Nice before founding the prog rock supergroup Emerson, Lake and Palmer. ELP formed in 1970 after Emerson, guitarist Greg Lake (formerly of King Crimson) and drummer Carl Palmer… joined together for a project that would better showcase their musicianship.” In the space of less than two months, rock and roll has now lost David Bowie, Paul Kantner and now Keith Emerson.

Bob Lefsetz spoke for many of us when he wrote, “The act was so successful that it was rewarded with its own label, Manticore, with its own colorful majordomo, Mario Medius. We knew all this, because the musicians were our heroes, and we followed them, knew everything about them, they were testing limits, challenging precepts, making it up as they went along. Imagine if Jeff Bezos were cool. Mark Zuckerberg too…whoever played, whoever channeled the gods, whoever dominated our consciousness, was revered. Music was our religion. And Keith Emerson was one of the deities.”

Emerson was one of the few rock music stars who was not the lead singer or the lead guitarist. He slogged away leading the technological revolution in rock and roll. Emerson gave the following explanation for his views on what constituted Progressive Rock, “Pop songs are about repetition and riffs and simplicity,” Emerson explained to one interviewer. “Progressive music takes a riff, turns it inside out, plays it upside down [and] the other way around, and explores its potential.” In other words, it was about expanding not only the boundaries but also even the possibilities.

This expansion seems to be an appropriate place to consider our old friends at Volkswagen (VW). There has certainly been a complete lack of any good news for the company over the past several weeks. The expansion of the multiple and international investigations is widening and the US government has opened up a front which, down the line, may be something that even the Foreign Corrupt Practices Act (FCPA) practitioner will need to consider.

On the international front, French prosecutors have opened a formal probe into the carmaker’s actions. As reported by Peter Campbell and Michael Stothard in a Financial Times (FT) article, entitled “Prosecutors widen probes into VW”, France was looking into the “aggravated fraud” at the company after it had tested some 100 cars in October 2014. The piece quoted Nathalie Homobono, the head of the French national agency that looks at fraud. She said that it has been determined that the company cheated “with intent”.

As bad as it might seem to have the French national prosecutor in charge of corporate fraud breathing down your corporate neck, there was a development reported in a Wall Street Journal (WSJ) article, entitled “U.S. Expands VW Probe with Novel Tack” by Devlin Barrett and Aruna Viswanatha, that may be the more ominous for the anti-corruption practitioner going forward.

The article stated the Department of Justice (DOJ) recently “issued a subpoena under the Financial Institutions Reform, Recovery and Enforcement Act, or Firrea, to pursue possible wrongdoing at Volkswagen.” The article went on to explain that this is “a novel use of the civil financial fraud law that the Obama administration deployed to extract record-setting multibillion-dollar settlements from big banks in the wake of the 2008 financial crisis. It suggests the car maker faces another potential source of penalties after admitting it used illegal software that allowed diesel-powered vehicles to pollute more on the road than during government emissions tests.”

The article reported, “the Volkswagen subpoena marks the first known instance of the government using a banking law to pursue potential wrongdoing that is not directly linked to financial misconduct.” The article quoted John Coffee, a law professor at Columbia University who studies white-collar prosecutions, who said that the use of the law “is pushing the legal theory to its outermost limits, against a defendant that is not particularly sympathetic.”

In addition to simply putting more pressure on VW, the use of the law offers tactical considerations for the DOJ. As noted, “A Firrea-based investigation adds a front that could pose new issues because the statute allows the Justice Department’s civil division lawyers to look back at conduct over 10 years, twice as far as many fraud statutes allow.” It also allows the DOJ to consider whether lenders were harmed by financing VW cars that had fraudulently listed values because the company lied when it said those cars met diesel emissions-testing standards.

Finally, it provides the government greater flexibility as it allows sharing of information by criminal and civil prosecutors. Most generally, information obtained by prosecutors through grand jury subpoenas cannot be shared with “their civil counterparts.” This use of this law unties those knots.

How does all of this relate to a FCPA enforcement action? Consider the now standard Securities and Exchange Commission (SEC) remedy of profit disgorgement. You do not find this listed as available to the SEC as a remedy under the text of the FCPA, however it is listed as a remedy according to the FCPA Guidance, “under Section 21B of the Exchange Act”. To finally link all this together, it was not an amendment to the FCPA which added this remedy to the SEC’s arsenal but the amendment came through the passage of a law called The Penny Stock Reform Act of 1990, which amended the Securities Exchange Act of 1934 to: allow the SEC to …(2) enter an order requiring an accounting and disgorgement;”.

It is axiomatic that bad facts make bad law. The WSJ quote from Coffee reminds us that pushing laws to their unintended uses against a defendant, who on the one hand admits the conduct occurred but then continually backs off these admissions, can also lead to the expansive use of a law to bring such a recalcitrant corporation to heel.

What happens if the DOJ or SEC decides to consider the effect of bribery and corruption in connection with bank loans or other financing a corporation may have secured? How about if a company’s loan covenants require it to not only not break the law but also have an effective compliance program in place? What if a bank provides project financing for a multi-billion dollar natural gas plant in Nigeria or gas platforms offshore Brazil for Petrobras?

While you are considering all of above, go check out the first hit from ELP, Lucky Man, from the album entitled Emerson Lake & Palmer in this YouTube clip.


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© Thomas R. Fox, 2016